Trust and Inventory Replenishment Decision Under Continuous Review System

This thesis examines the impact of inventory manager’ trust on their replenishment decision. We conduct this study in the experimental environment and design an experiment with unknown market demand, local information, and under continuous replenishment review. We also develop a multi-round trust measurement procedure through questionnaires and administer it in the context of a laboratory experiment. To conduct the study, we take the three following steps: First we investigate inventory replenishment decision under continuous review in a decentralized supply chain. Our results show that order time intervals increase along the supply chain. Inventory managers’ replenishment decisions affect their own and the other echelons’ costs. Moreover, we find that wholesaler plays the smoothing role in the decentralized supply chain. Second, we develop a multi-round trust measurement procedure through questionnaires and conduct it in the context of a laboratory experiment. This design allows us to observe inventory managers’ trust in customer and trust in supplier over time. Our results show that trust exist in a decentralized supply chain, with local information, no communication, and no access to the market demand, and trust level varies in a continuum of intensity in a decentralized supply chain. Also, we find that trust evolves and for some echelons it grows over time. We further examine trust in customer and trust in supplier along the supply chain. Our results suggest that trust in supplier is the lowest in the middle of supply chain and that trust in customer decreases while moving upstream along a decentralized supply chain. Finally, we study the impact of trust in inventory replenishment decision and analyze data at individual and echelon level. Our results show that low trust in customer is linked to high order quantity and long order time intervals at the individual levels. Also, results on the echelon level suggest that distributor exhibits the lowest trust, highest order quantity and largest order time intervals among echelons, and retailer is the only echelon that considers trust in supplier while placing order quantities to upstream supplier. We further explore the inventory holding behavior of managers and find that inventory managers hold higher inventory level when they have lower trust in customer and trust in their upstream supplier. This research fits within the behavioral operations field.